How our rampant inflation is ‘growing’ the economy

When the third quarter of this year began, surveys showed that nearly half of Americans believed the country was in a recession. Now we’re to believe the government’s statistics showing GDP growing by a 4.9% annualized pace during Q3 somehow reflects a robustly growing and healthy economy. What gives?

The truth is that our economy is saddled with so much government spending, debt, and inflation that key economic indicators we once relied upon have been distorted and rendered useless.

Just as we saw with the “robust” job creation numbers that were, in fact, a symptom of workers taking on more part-time work to make ends meet, the latest gross domestic product data reflects an economy in which people are spending more — a lot more — on basic living expenses.

In that sense, the White House is justified in touting robust economic growth. Rather than working to live, under Bidenomics we will have to live to work for the rest of our lives to continue paying more for vital services like food, utilities, and housing. As we go into debt and bankrupt ourselves, it will temporarily boost consumer spending. Is that something to celebrate?

Savings underwrites spending

Let’s peek behind the top-line number of 4.9% growth during the third quarter. Gross domestic product is composed of four components: personal consumption expenditures, gross private domestic investment, government spending, and net exports.

Net exports were negative during Q3, reflecting an economy that is not growing in a meaningful way.

Federal spending, particularly on defense, grew exponentially and accounted for 0.8 points of the 4.9% annualized GDP increase. So let’s take that out of the equation when assessing private-sector growth.

The more Joe Biden drives us into the debt bubble and inflates the cost of living, the more people are forced to spend in the economy.

What accounted for the lion’s share of the private-sector growth? Personal consumption, which composes nearly two-thirds of the economic pie, accounted for 2.7 points of that growth.

When personal consumption reflects growing income and more prosperity, it is a sign of a healthy economy. But when it reflects a higher cost of basic living and consumers going into debt to make ends meet, it is an indication of Bidenomics hell.

Most of the increase in private consumption came from services, and the largest drivers of consumption among services were housing, utilities, health care, and insurance. That is a dead giveaway that the increased consumer spending is not fueled by a growing pie of prosperity but an increase in the basic cost of living. Thus, ironically, inflation itself is “growing” GDP.

The proof that the growth in consumer spending is driven by consumer strain and debt flowing naturally from hyperinflation, instead of from an expanding pie, is implied on the second page of the GDP report on disposable income and savings:

Disposable personal income increased $95.8 billion, or 1.9 percent, in the third quarter, compared with an increase of $296.5 billion, or 6.1 percent, in the second quarter. Real disposable income decreased 1.0 percent, in contrast to an increase of 3.5 percent.

Personal saving was $776.9 billion in the third quarter, compared with 1.04 trillion in the second quarter. The personal saving rate — personal saving as a percentage of disposable personal income — was 3.8 percent in the third quarter, compared with 5.2 percent in the second quarter.

Gee, how could a 5% increase in GDP coexist with real disposable income actually shrinking, plus personal savings contracting by 24%? Very simple. People are depleting savings and going into debt to pay for the rising cost of living, which is why GDP is an outdated measurement. It’s actually picking up a negative symptom of the economy and reflecting it as positive news.

Just think about it: When have we ever seen a 5% growth rate driven by private consumption when corporate and personal tax revenues are down $1.7 trillion? Where is the economic growth? Where is the profit? Government tax revenues don’t lie. Believe me, if there is growth and prosperity to be had, the federal coffers would be in on it.

If anyone had any doubt whether the GDP numbers were driven by draconian and debilitating inflation rather than organic growth, the day after the GDP report was released, the Bureau of Economic Analysis released its report on Personal Income and Outlays showing income and savings down, with spending through the roof.

High third-quarter spending was underwritten by a steady decline in savings. When personal spending outpaces personal income, the clear culprit is inflation.

High inventories fuel business spending

Ironically, our GDP growth was driven by both the government and private households going into debt to spend more money they don’t have, while net exports dropped. Consumer credit card debt has surged past $1 trillion for the first time. Delinquency rates on credit cards, mortgages, and car payments are sky-high, with 60-day car payment delinquencies for those with bad credit hitting an all-time record of 6.1% in September.

So what about the fourth component of the report — gross private domestic spending? We posted solid business investment, right?

Nope. Investments in anything of value (factories, equipment, software, intellectual property) were all flat or down. Nearly the entirety of increase in business spending came not from investments, but from inventories!

In other words, increased business spending reflects the same ailing economy as the increased consumer spending. The economy is stagnating, reflecting the gloomy mood of nearly every survey of consumer sentiment, which is unprecedented for quarters of 5% GDP growth. The only reason inventories are spiking is that businesses perceive a coming increase in prices and are trying to hoard products while they can. Unlike investments in factories and equipment, increased inventories help contribute to GDP for one quarter but will come out of the top-line number in the next quarter.

Hence, the more Joe Biden drives us into the debt bubble and inflates the cost of living, the more people are forced to spend in the economy, and like we saw with last month’s jobs report, the more they have to take on extra jobs. In some perverse way that might qualify as economic growth — if you view the economy as something to slave away for rather than something to serve you in pursuit of upward mobility.